Software Pricing Problem? Take This Five Minute Test

Take our 5 minute test
It’s natural to point fingers when you realize your software company isn’t quite reaching its full revenue potential. But make sure you don’t find yourself pointing your fingers in the wrong direction (or at a portion of the root causes). By now, we should all know that bad things can happen when we don’t study the whole story and this applies to software pricing.

Software companies, in general, tend to find themselves preoccupied with “pricing problems.” After tweaking their price lists and website pricing pages ad nauseam, they inevitably find themselves with similar challenges, just different price points. So, whats the issue?

Often, it’s not the prices that are the problem. More often than not, there’s a problem in how the software is licensed or packaged. Software Pricing is just one part of Software Monetization.

Software Monetization Test

We analyzed over 400 software monetization engagements with some of the largest and most successful B2B software companies in the world. We then compiled a list of questions you should answer to see whether you have challenges in how you monetize your products and services–and not just a problem with your price points.

The test is easy and straightforward and should take about 5 minutes to complete. Try not to overthink it. Give yourself one point for each “yes” answer. Refer to the scoring section below to see how you did.

Software Licensing

  • Do your company’s revenues scale well with the value your application delivers?
  • Does your license metric align well with customers’ perceptions of value?
  • Does your license metric make sense (i.e. does it seem reasonable and pass the sniff test)?
  • Do your payment terms meet your financial objectives and your customers’ needs?
  • Do your software rights-to-use meet your financial objectives and your customers’ needs?

Software Packaging

For each of the questions below, the term “offer” means a specific package of products and services you offer to a target segment of customers. For example, Basic, Pro, Advanced or Small Business, Medium Business, Enterprise, etc.

Investigate all three areas of the Software Monetization (Software Licensing, Software Packaging and Software Pricing), and you’ll cover all necessary facets of monetizing the value you deliver.
  • Are your offers aimed at specific types of customers/use cases?
  • Are your offers easy-to-understand by your customers?
  • Do your offers provide meaningfully different value for different types of customers?
  • Do your offers create upgrade/upsell opportunities, especially when customers need more functionality?
  • Can salespeople easily explain your offers and their differences?

Software Pricing

  • Is your pricing simple, unambiguous and easily understood by your salespeople and customers?
  • Do your price levels reflect value delivered, while remaining competitive?
  • If you offer volume discounts, do they cover the range of ordering scenarios and then some?
  • Do your other standard discounts relate directly to your financial and non-financial objectives (e.g. discount for pre-payment, length of contract commitment, etc.)?
  • In the long run, will the costs of supporting your revenue model make economic sense?

Scoring

Give your team 1 point for each “yes” answer above.

  • I scored 15! Oh come on. Eliminate your biases by having a colleague take the test and see if he/she agrees…
  • I scored 11 to 14! You’re definitely ahead of the average software company, although some easy tweaks could rocket you to your full revenue potential relatively quickly.
  • I scored 7 to 10! You most likely have systemic issues in licensing and packaging which means you’re operating from a fragile foundation. Many of the problems you are experiencing are most likely symptoms of a much large issue.
  • I scored a 0 to 6! You’re most likely a startup, which is okay. Get your first 20 deals under your belt then start thinking about commercial pricing. If you’re not a startup, then, well, you may want to consider starting from scratch and revisiting the challenge of monetizing your products and services with a fresh set of eyes.

Where To Go From Here

Investigate all three areas of Software Monetization (Software Licensing, Software Packaging and Software Pricing), and you’ll cover all necessary facets of monetizing the value you deliver.

Instead of “doing pricing,” from now on, think about how to monetize your offering. Work each part of Software Monetization separately; leave Software Pricing (i.e. price setting) for last. At that point you can iterate to a well-integrated Monetization Model that makes sense for your business and will accelerate growth in revenue and number of customers.

About the Author

Jim Geisman

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Jim is the founder of Software Pricing Partners. The firm was started in 1982 and, since 1987, has focused solely on software pricing. Jim has helped emerging and established software companies solve some of their toughest pricing problems. He also helps SaaS companies price, structure and negotiate “the big deals”.

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